Corn and soybean price volatility this fall has reached levels not seen for
several years. The high volatility creates special challenges in marketing grain.
Robert Wisner, Iowa State University Extension economist, offers several alternative
strategies that may be helpful to farmers in coping with volatile markets. "Selling
most of your crop at the top of the market is an unrealistic goal. A more workable
goal is to sell grain at a price that at least covers the financial needs and
goals of the individual farming operation."

One approach for marketing in volatile markets is a scale-up strategy, which
increases sales on a rising market. This strategy can be applied by deciding
ahead of time to market an additional quantity of grain for each pre-determined
amount of increase in the price. Wisner said an example of this marketing strategy
might be to sell an additional 10,000 bushels of grain with each additional
5 or 6 cent rise in the price. The quantity to sell would vary from one individual
to another, along with the amount of price increase needed to trigger sales.
The key is planning ahead and exercising discipline to carry out the plan.

The economist said another approach might be to use offer contracts with a
local elevator, with instructions to sell a specific amount of grain if your
price (or basis under futures) goal is reached. "In highly volatile markets,
prices might reach your price goal for a brief period and then decline. Professional
grain merchandisers who continuously watch the market can take advantage of
brief upward price moves that farmers might not notice," Wisner said. "An
offer contract typically would be designed to, in effect, say 'If the price
reaches my goal, don't call me back. Just sell my grain,' " he added.

For farmers who understand technical market indicators, strategies can be tied
to the behavior of moving average prices or an indicator called the relative
strength index. For example, charting services often provide four-day, nine-day,
and 18-day moving averages of closing futures prices. Some of these services
are available at no cost on the Internet. In a strongly rising market, a sell
signal is triggered when the four-day moving average drops below the longer-term
moving averages. Wisner said that usually happens shortly after the market has
reached a top. He added that the strategy does not guarantee that the top just
reached will be the ultimate top of the market. However, it is a technique for
delaying sales when this technical indicator says the trend is still upward.

Wisner said the relative strength index is another technical indicator that
may provide insights into risk of the market turning downward. The relative
strength index (RSI) theoretically ranges from zero to 100. If the index is
below 20, the market generally is considered to be oversold and due for an upturn
in prices. If it is above 80, the market is considered to be overbought and
due for a downturn. In late October, the RSI on near-by soybean futures was
over 90.

Another approach for dealing with volatile grain markets is to use decision-rule
contracts (DRC) if they are available in markets where you sell grain, according
to Wisner. These contracts provide computer-generated sales of a pre-determined
amount of grain, with the computer using moving averages, the RSI or other technical
indicators to trigger sales. Wisner said DRC contracts do not guarantee that
grain will be sold at the ultimate top of the market, but they provide discipline
to sell grain when technical indicators hint that prices may have reached a
top.

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ml: isufarm

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